Traders Betting On Rim

Research In Motion Ltd. has perhaps been the most volatile blue chip stock in Canada over the past two years, disappointing one moment then exultant the next.

Thursday, was another one of those days.

RIM's Thursday began with an intermittent BlackBerry email outage across North America but ended with the problem being solved in time for investors to share the good news of a stock rally after the markets closed.

Shares of RIM jumped more than 11% in late trading on the NASDAQ after the Waterloo, Ont., technology company posted third quarter financial results and guidance for the current quarter which surpassed Wall Street expectations.

"We are pleased to report record shipments of more than 10 million BlackBerry smart phones during the third quarter with higher than expected revenue, earnings and subscriber growth," RIM's co-chief executive officer Jim Balsillie said in a statement.

RIM said revenue for the third quarter, ended Nov. 28, 2009, was US$3.92-billion, with earnings per share of $1.10 per share diluted. Revenue was up 11 per cent over the $3.53-billion RIM earned in the same quarter a year ago.

On average, analysts polled by Thomson Reuters IBES were expecting earnings per share of $1.04 and revenue of US$3.79-billion

RIM said net income for the quarter was $628.4-million, up from $475.6-million in the same quarter a year ago.

Investors greeted the company's forecast with relief, since shares of the BlackBerry maker have been locked in an unpleasant roller coaster ride since peaking at more than $144 in June of 2008. After worries over the company's gross margins and the volatility in the world's capital markets caused a freefall in RIM shares in the fall of 2008, RIM's stock price bottomed out near $36 in March. However, it has gained steadily since then, topping $70 in late trading yesterday.

Canaccord Adams financial analyst Peter Misek characterized RIM's results and guidance as "very good."

Mr. Misek believes RIM remains well positioned to compete against devices such as Apple Inc.'s iPhone, which has recently been blamed for causing bandwidth congestion issues due to the way its data processes operate with the networks of certain carriers, including AT&T Inc.'s in the United States.

"In a world of finite bandwidth RIM will do just fine," he said. "So will Apple, but for different reasons."

RIM added 4.4 million new BlackBerry subscribers in the quarter, bringing RIM's global user base to about 36 million. RIM said it shipped 10.1 million devices in the quarter.

RIM's gross margins - a stat closely watched by investors which indicates how much RIM can charge for each BlackBerry - fell to 42.7% from 44.1% in the previous quarter.

RIM began selling both the BlackBerry Storm2 and Bold 9700 in the quarter and continued rolling out the Curve 8520 to international markets.

For the current quarter, RIM said it expects revenue to fall between $4.2-billion and $4.4-billion, with a gross margin of about 43.5% and earnings per share of between $1.23 and $1.31 diluted. RIM said it expects to add between 4.4 million and 4.7 million new BlackBerry users in the quarter.

Internationally, RIM continues to grow. In addition to announcing a pair of deals with China Mobile and Digital China Holdings Ltd. to bring the BlackBerry to the world's most populous nation, Mr. Balsillie told investors on an afternoon conference call that the company is looking at the possibility of opening manufacturing and research and development facilities in the region.

Mr. Balsillie said 37% of RIM's revenue in the quarter came from markets outside North America. More than 35% of RIM's subscribers come from outside the United States and Canada and the company now works with more than 530 carriers and distribution partners around the world.

Financial Post

Traders are speculating RIM will rebound from a big decline since the company forecast sales in September that were below analysts' estimates, said Nick Agostino, an analyst at Research Capital Corp. in Toronto who has recommended the shares for more than three years.

Traders are snapping up options on Research In Motion Ltd., betting the shares will climb 25% in five weeks as prospects for sales accelerate, especially in China.

Investors buying contracts to purchase RIM for US$80 through Jan. 15 helped drive bullish contracts on the stock to twice the level of bearish ones, the highest ratio since March 2006, according to data compiled by Bloomberg. The last time calls outnumbered puts by as much, shares of the Waterloo, Ont.-based BlackBerry maker quadrupled in 19 months.

Traders are speculating RIM will rebound from a big decline since the company forecast sales in September that were below analysts' estimates, said Nick Agostino, an analyst at Research Capital Corp. in Toronto who has recommended the shares for more than three years.

RIM is expanding distribution in China and its BlackBerry Curve surpassed Cupertino, Calif.-based Apple Inc.'s iPhone as the top-selling consumer smart phone last quarter, helped by price cuts.

"People are realizing the haircut the stock has taken since the last quarter was overdone," Mr. Agostino said. "People were looking for further deterioration in the business model, and what they're seeing recently from sales channels is signs of what could be a stable quarter."

RIM's Toronto-listed shares (RIM/TSX) closed yesterday at $67.82, up $2.73, or 4.2%.

In New York, Research In Motion's Nasdaq-listed shares (RIMM/NASDAQ) jumped US$2.98, or 4.9%, to $64.14. Declines since the company's Sept. 24 sales forecast pared year-to-date gains to about 51% before yesterday.

The stock must rise 25% from yesterday's close in U.S. trading to reach the strike price on the January US$80 contracts. Calls give the right to buy shares for a given price through a certain date, while puts convey the right to sell. RIM hasn't closed above US$80 since September.

The company said in September that revenue for the three-month period ended Nov. 28 would be as low as US$3.6-billion, less than the average analyst projection of US$3.91-billion, according to data compiled by Bloomberg.

January US$80 calls have more than doubled since Dec. 4 to 96,650 contracts, the highest so-called open interest for RIM options. That's the steepest rise among the company's options during the past two weeks, according to data compiled by Bloomberg and Trade Alert LLC, a New York-based provider of market analytics.

The company said yesterday that it will sell a BlackBerry customized for China and partner with an affiliate of Lenovo Group Ltd. to increase business in the world's biggest mobile-phone market. On Dec. 7, RIM reached an agreement to expand distribution through Digital China Holdings Ltd. Both Lenovo and Digital China are based in Hong Kong. "That has shown people there is international growth potential in the stock," Mr. Agostino said.

RIM gets more than 70% of its revenue from North America, according to data compiled by Bloomberg.

The RIM options rose 14% to US50¢ yesterday. Trading volume exceeded 25,000 contracts on Dec. 4 and Dec. 7.

"Upside call buying remains the theme," options strategists at Susquehanna International Group LLP in Bala Cynwyd, Pa., wrote in a Dec. 7 report.

"This trading suggests investors are using these relatively inexpensive calls in order to position for significant move to the upside in shares over the coming months."

WAVEFRONT ENERGY (V-WEE)

S&P/TSX COMPOSITE INDEX:

11486.34 -150.70

It’s that time of year again folks...no we are not talking

about Santa Claus just yet, but that too is getting close.

No, we are talking about tax-loss selling as we have now hit

the time of year that you should be paying attention to what

your accountant, planner or broker is suggesting.

It’s time to look at your portfolio and those that are dogs

and you don’t have much hope for, are sold, possibly or

probably even at a loss to go against some of the money

you’ve made in this past year. It’s actually been an incredi-

ble year if one had any courage at all in the first quarter to

take an adventure in the markets.

That means you probably made some decent change on

some of your plays. But those that are now dogs and look

like they will continue to bark, one should part with to make

sure the Feds don’t get more of your money than they de-

serve.

The key to be aware of is for Canadian tax payers to sell

their securities before December 24th.

WAVEFRONT ENERGY

(V-WEE)

$2.91 +0.89

In the past seven months, we wrote up the Wavefront

Energy story no less than 16 times. We owe a lot of

thanks to Jim Letourneau, a hydro-geologist by training

and editor of the Big Picture Speculator who made how

significant the technology could be.

Letourneau had been following developments there

for years and even worked there for a while.

Today, Wavefront announces that an unnamed Energy

“is expanding the use of Powerwave to three locations

from one.”

According to the announcement, “Wavefront and the

client are in active discussion towards a master agree-

ment for long-term use of Powerwave across the client’s

assets.”

They continue, “Under the terms of the amended

agreement will initially provide a minimum of 35 to 50

Powerwave systems…”

The Company is unnamed, but for all those watching

this story, Encana is the rumoured company, and they

just may have given Wavefront the “Good Housekeeping

Seal of Approval.” Now it will be expected to see most

other oil and gas companies around the world to take a

look at this technology and it looks like after a decade of

work, Wavefront might be becoming an overnight suc-

cess.

When we caught up with Jim Letourneau today, he

says, “this sets the stage for lots of growth in the coming

year as other companies will have to pay attention to

what Encana does. Today’s news he suggests, “is con-

firmation of the technology,”

Wavefront today does huge volume showing many are

watching this story! Thanks again to Jim Letourneau for

leading the adventure and thanks to those mutual funds

that sold almost 15 million shares done at near $0.60 to

$0.70. So much for professional management.

For those who were on the Bankers Petroleum adven-

ture, the Wavefront story, the Coastal story and the

Keegan and East Asia adventures, make sure you are in

the next adventure starting shortly. And for the very

speculative money, a bit of the lottery ticket from Brazil.

GALWAY RESOURCES

(V-GWY)

Despite gold having quite a correction in the last few

months, there is a long list of junior gold’s that are proba-

bly some of the better stories of the day that are actually

still heading up. Galway Resources is one of them, but we’ve

got to be pretty frank about this...Galway is another lottery

ticket.

Take a look at the map and it shows you that the awe-

some success of Greystar and Ventana Gold may/or may

not extend onto Galway’s ground. Galway is currently

drilling there, but whether they’ve got anything of the

sweet stuff or not, we will know down the road. In the

meantime, there are an awful lot of speculators stepping

into the play.

When we caught up with company President Robert

Hinchcliffe he reminds us that this is Latin America where

Christmas in the season is a big deal...labs shut down

early and for a long period of time. As to when we can

except some results from the drill that has been turning

for a while, he suspect that mid-January is probably the

best target.

A second rig is expected to start early January and in

the meantime, Hinchcliffe says that there has been quite a

list of institutions and people through the office to take a

look at their geology...all undoubtedly trying to figure out

what the chances are that the sweet stuff from Ventana/

Greystar extends onto their ground.